Does Lifeline Need a Life Boat?

Last week, the GAO issued a report on its investigation into the FCC’s Lifeline program, a program designed to deliver essential communications services to low income families but one that has grown at an alarming rate. The report’s findings are both expected and surprising – expected in that the report highlights areas of weakness in the program of which we have long been aware; surprising in that the investigation suggests that the waste and abuse could be much worse than we ever imagined. For example, in Michigan a whopping 67.5% of subscribers who enrolled for Lifeline relying on asserted SNAP participation could not be verified by the GAO investigators.

Eligibility verification has long been a major program weakness because the FCC in the past has relied solely on the more than 2,000 Lifeline service providers to perform this critical function. It’s not difficult to foresee government challenges in auditing each individual provider for compliance with the complex verification rules.

Fortunately, many of the eligibility issues will be mitigated when the recently adopted National Verifier is implemented. Indeed, the GAO report acknowledges as much. But while the Universal Service Administrative Co. (USAC) and the FCC are working hard to get the National Verifier launched at the end of this year, full functionality won’t be available in all states until 2019. In the meantime, new enrollments continue to occur and, presumably, so too will the problems documented by the GAO. Given the continued growth of the fund, the GAO’s findings raise questions around whether new enrollments should be limited until the National Verifier is fully in place.

Equally troubling were the report’s observations about the effectiveness of the Lifeline program. The report notes that Lifeline participation rates are low compared to the percentage of low income households that pay for phone service. According to the FCC, the participation rate shows that millions of Lifeline-eligible households are obtaining voice service without the Lifeline discount. This is not surprising given how affordable and accessible many market-based services have become. And, according to the GAO, the FCC does not know whether Lifeline phones (which are overwhelmingly wireless) are the first and only phone in the household or a redundant phone.

The GAO also notes that, while Lifeline was revamped in 2016 to focus on broadband, broadband adoption rates have steadily increased for low-income populations absent a Lifeline subsidy for broadband. For example, the report finds that in 21 states, at least two companies are currently offering low income broadband products at a price point substantially more attractive than the benchmark of a comparable Lifeline broadband product.

More work is needed to fully assess how effective the program currently is, but the report suggests that such an effort is well worth pursuing. Lifeline is an important and essential program, but one that between disbursements and administrative costs comes with a $2B/year plus price tag. Given the findings in the report, it might be time to reconsider budgetary or other limits on the program to stabilize it – an opportunity that was lost during the 2016 reforms. And, if any part of the considerable Lifeline expenditures are not truly needed to address low income voice or broadband needs, that money could be redirected to where the need is undisputed – deployment of rural broadband.

The report also noted the history of delays between USAC requests for guidance and FCC action on those requests, particularly as it relates to Universal Service Fund (USF) contribution requirements. Our own experience suggests that carriers apply the rules very differently and in ways that have a material impact on the fund. We support the call for clear guidance from the FCC to ensure the contribution factor is based on complete information and that USF pass-through charges are equitable.

The FCC’s USF initiatives are important, complex programs that are as necessary as they are challenging to manage. The GAO report provides additional evidence that flaws in these programs can be used by unscrupulous actors seeking to line their own pockets at the expense of taxpayers and populations truly in need; and that while the FCC’s Lifeline program is essential to those that need it, there is significant room for both improved efficiency and performance.

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